Carbon offset markets aren’t working. A new private-sector reform movement aims to make them better

Will this reboot spur real reductions in carbon emissions — or just usher in another wave of corporate greenwashing?

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A major international effort to revitalize the world’s ailing carbon-offset markets is gaining ground with corporate and financial backers. But it’s also drawing increased scrutiny from environmental groups that fear it will create an even larger platform for corporate greenwashing.

That’s the state of play for a high-integrity market for carbon trading” concept being promoted by the private-sector-led Taskforce on Scaling Voluntary Carbon Markets.

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Earlier this month, the group launched a report setting out the standards, governance guidelines and legal principles behind a voluntary global carbon-trading scheme that could expand the market for carbon offsets from about $300 million a year today to up to $100 billion a year.

The beefed-up structure for companies to invest in carbon-emissions offsets around the world is the brainchild of Mark Carney, United Nations special envoy for climate action and finance and a former governor of the Bank of Canada and later the Bank of England.

This market will allow participants to trade with confidence, safe in the knowledge that this activity is making a difference to the planet and its people,” stated group chair Bill Winters in a press release.

Much like carbon taxes, such a market would aim to stimulate investment in low-carbon technologies by putting a price on carbon dioxide emissions. Investments can support such work as preserving or restoring forests, peatlands and other landscapes that store carbon, or deploying technologies that replace carbon-emitting generation, transport or industrial systems in developing countries.

A mixed response

However, the proposal has continued to draw fire from environmental groups concerned that it, much like the voluntary carbon-offset markets that have evolved over the past decades, could end up being used as cover by carbon polluters.

Given the huge increase in size for voluntary carbon markets that is proposed, how can we make sure that companies won’t just use offsetting as an excuse to carry on polluting?” wrote Greenpeace U.K. Senior Climate Advisor Charlie Kronick in a blog post.

But Jose Lindo, head impact officer of Climatetrade, a carbon-offset platform provider and member of the Taskforce on Scaling Voluntary Carbon Markets, believes the core carbon principles contained in the group’s proposals could help deliver a more realistic price for carbon emissions worldwide.

Pricing has been an issue for carbon markets since the concept was introduced in the 1997 Kyoto Protocol on greenhouse gas emissions. But the schemes developed since then have failed to produce a carbon price high enough to stimulate significant investment in climate-change mitigation measures.

Lindo said the global average price of carbon, as tracked by the World Bank, is currently between $7 and $10 per metric ton. Such low levels make it easy for polluters to claim they are reducing CO2 by buying large numbers of offsets even if they are not taking concrete action to curb emissions.

The minimum needed to stimulate investment

According to [carbon-pricing experts] Joseph Stiglitz and Nicholas Stern, the appropriate price to achieve the Paris Agreement [targets] should already be $40 [per metric ton], and a minimum of $100 in 2030,” Lindo told Canary Media in an email.

Achieving a price of $100 per metric ton is widely seen as vital to trigger investment in several key energy-transition and climate-mitigation tools, including low-carbon hydrogen and carbon capture and storage.

Lindo said that with the task force’s core carbon principles, a large part of Kyoto’s old and inherited carbon credits are extinguished, and we will leave the oversupply phase, balancing a higher, fair carbon price and higher-quality mitigations.”

The controversy around schemes such as the one proposed by the new group is likely to continue after Greenpeace revealed last month that ExxonMobil’s backing of carbon taxes was based on the assumption that they would never be implemented in the U.S.

Yet while ExxonMobil’s executives apparently believed carbon pricing would not be effective, others worry about the opposite: that it could affect the affordability of energy.

In the long run, we don’t have to worry because we’ve got enough green energy,” said Angela Wilkinson, secretary general and CEO of the World Energy Council, in an interview. But in the short run, there’s going to be a scarcity of green [energy], which is going to bring a huge rise in price. I find it hard to get the economics to work.”

Is carbon pricing already affecting energy costs?

Early warning signs of this problem may be emerging in Europe, which has the world’s most advanced international emissions trading scheme and this month announced a carbon border adjustment mechanism for greenhouse gases linked to non-European goods.

In Spain, for example, high carbon pricing plus soaring natural-gas costs have been blamed for record-high energy bills in July. The situation prompted Spain’s energy transition minister, Teresa Ribera Rodríguez, to suggest compensating industrial power users for carbon emission costs.

Despite such misgivings, some industry insiders are cautiously optimistic about the task force’s voluntary carbon market proposals.

It looks like a nice idea,” said Schalk Cloete, a research scientist at Norway’s Foundation for Industrial and Technical Research, an independent R&D body.

Now that reducing CO2 emissions is becoming cool, companies have a natural incentive to reduce emissions to impress consumers,” he said in an email. I just hope these markets can be set up in a technology-neutral manner and achieve real CO2 emission reductions — not just financial engineering.”

(Article image courtesy of Landon Parenteau)

Jason Deign focuses on global trends in climatetech, energy storage and wind. He is based in Barcelona, Spain.